If a business pays its expenses immediately can they still be accrual basis?
Apparently, yes.
http://www.investorwords.com/61/accrual_basis_accounting.html
Thanks Ms. Sue. Your help is much appreciated.
You're very welcome, Ashley.
Would you happen to know Classify the following adjusting entries as involving prepaid expenses (PE), unearned revenues (UR),
accrued expenses (AE), or accrued revenues (AR).
a. To record revenue earned that was previously received as cash in advance.
b. To record annual depreciation expense.
c. To record wages expense incurred but not yet paid (nor recorded).
d. To record revenue earned but not yet billed (nor recorded).
e. To record expiration of prepaid insurance
To determine if a business can be considered accrual basis despite paying expenses immediately, we need to understand the difference between cash basis accounting and accrual basis accounting.
Cash basis accounting records transactions when cash is received or paid out. This means that revenue is recognized when payment is received, and expenses are recognized when payment is made.
Accrual basis accounting, on the other hand, recognizes revenue when it is earned and expenses when they are incurred, regardless of when cash is received or paid.
When a business pays its expenses immediately, it typically means that cash basis accounting is being used. However, it is still possible for a business to be accrual basis even if expenses are paid immediately.
To determine if a business can be considered accrual basis, we need to look at whether revenue is being recognized when it is earned, rather than when cash is received. If the business is recording revenue when it is earned, and expenses when they are incurred, even if they are paid immediately, it can still be considered accrual basis.
It's important to consult with a professional accountant or consider the specific accounting policies and practices followed by the business to determine if they are utilizing accrual basis accounting.